Monday, 5 December 2011

Chris Auld gets shrill

I would make the argument that I don’t see those inflated prices, certainly, depending on where you buy,” Ritz told a joint news conference with Alberta Agriculture Minister Evan Berger and Saskatchewan Agriculture Minister Bob Bjornerud.

I received a flyer in my mailbox last night when I got back to my apartment and I opened it up and it’s from Canadian Tire. They’ve got four litres of milk for $4.19. That’s completely comparable to the American price that we’re always being beat up over.

Canadian Tire Econometrics aside, consumers are of course harmed by high prices driven by quantity restrictions. Click here to see a graph showing how much higher our prices are than the EU, US, or New Zealand (all of which also have some sort of supply management, Canada’s is just more severe).

I'm a bit puzzled though by Auld's claim that New Zealand has supply management. The closest thing we have is that Fonterra is required to sell some of its milk at to its smaller competitors - this is more a form of antitrust action than supply management as Fonterra is a very dominant producer cooperative. I'm not defending the regulation, but it can hardly be counted as a form of supply management. There will eventually be an effective form of supply management via irrigation permits for pastureland - irrigation consents will eventually become the binding constraint, at which point those start accruing the kind of rents that dairy quota gets. But I don't think we're there yet. And, again, a real resource constraint is different from a regulatory one.

Auld excoriates all of the Canadian political parties, from the Conservatives to the Communists, for their siding with producer rents over the public good. The Greens' concerns in particular I worry have some resonance with Canadian voters - that the Canadian market would be overrun quickly with hormone-laden, genetically modified American poultry and milk. It's not been the case with beef despite the lack of supply management for beef. It's not been the case in New Zealand despite our free markets in dairy and poultry - we have lots of product heterogeneity here without supply management. The Greens' worries only come to fruition in the case in which consumers care more about cost than about having yuppie-quality products, in which case it's best that that outcome obtains anyway.

He asks:

Supply management is effectively a hidden tax: Would any the major political parties support this inefficient and regressive policy if it had been implemented as a tax on consumers combined with a subsidy to firms?

I point to the old Tyran and Sausgruber results on tax incidence and voter inability to understand same. I'd expect the problem is worse for regulatory incidence than for tax incidence.

5 comments:

Eric, I thought I read that New Zealand's domestic dairy market is basically free, but trade is still controlled (it is somewhat misleading to label that "supply management"). I'll correct my post if that's not the case. Do you have a good reference?

There's an export quota system, but I'm pretty sure that that's only for access to regulated markets. So the US only allows in so much NZ dairy every year; you have to get quota to be a supplier into that restricted market. Similarly, the old New Zealand Dairy Board was allocated a bunch of quota from the EU for access to the protected European market - I think because of prior NZ preferential entry into the UK. If those markets were freed, we'd not need the quota. But if the country as a whole can only send so much dairy export to particular markets, our govt is stuck keeping track of it.

There are also general export licenses, but again, I think those are for over-quota export to quota-controlled countries; after the quota is exhausted, we then go to standard tariff-rate export. But they have to keep track of what bits go towards the quota allocation (given us by other countries) and what bits are then over-quota.